Racing this time

By Fiona Rotherham

Monday 1st November 2004

It's an Australian race that stops two nations. Most New Zealand workplaces grind to a halt and thousands are wagered in office sweepstakes when the Emirates Melbourne Cup, the world's richest horse race, runs on the first Tuesday in November each year.

Once the cheering has died down for this year's Cup winners, the New Zealand racing industry will be left with the challenge: how can it emulate that level of participation in racing here?

The industry is shedding 1% of its customers every year, thanks to increasing competition from poker machines, casinos, and other types of sports betting and entertainment. The New Zealand Racing Board's solution is to try to transform racing from a sport reliant on die-hard volunteers to a professional sports entertainment business. Just as traditional sports such as rugby and cricket have had to adapt to bring the crowds back, racing has to create excitement and a sense of occasion for its product in all three codes - thoroughbred, harness and greyhounds. They need a racing version of rugby's Super 12.

Despite its decline, racing is still big business, generating almost $1.5 billion a year for the economy, or around 1.3% of GDP - about the same size as New Zealand's fishing industry. Every $1 spent directly in the racing industry generates about $3.50 worth of spending across the economy, according to a report by Australian consultants IER for the racing board.

But for all the dollars involved, not many people are making money out of racing - just ask David and Masey Benjamin. Two years ago, the husband-and-wife team were the country's top breeders; now they've sold their Fayette Park Stud, downsizing to a much smaller Waikato farm, and their brood mare numbers have dropped from around 300 to just 38. They weren't making enough money to justify the assets tied up in the business and were continually struggling to attract skilled staff, David says. When they were offered a good price, the Benjamins sold.

They're not alone. Anecdotal evidence suggests only around 10% of the top echelon of each sector - breeders, trainers and owners - are doing better than merely scratching out a living. A gigantic leap in ACC levies from $3.61 per $100 of wages in 2001, to $8.01 this season, has many trainers struggling to stay in business. "I'm a fourth-generation trainer, it's my passion and I really want to do it, but I'm not going to survive doing it in Auckland when Dad retires," says 27-year-old Belinda Verner, who has just got her trainer's licence.

"The status quo is unsustainable," racing board chairman Warren Larsen bluntly told industry participants at Te Rapa last month. His view echoes that of a 2002 PricewaterhouseCoopers industry report, which said: "In the absence of radical action by any sector groups, the status quo could be likened to a slow death."

But industry players say they're fed up with the scores of reports over the years telling them what's wrong with racing. They want action. There was a two-year hiatus in the lead-up to the 2003 Racing Act, which produced last year's merger of the TAB and racing industry board. Larsen rejects allegations of inaction since the merger, saying the first year was spent gathering data on the industry and putting the right people in place. Chief executive Graeme Hansen returned to New Zealand in March from a high-level banking career offshore to lead the change.

The racing board has put together a ten-point plan to try to turn things around. Industry reaction is generally supportive, but most note there's little detail on ow and when the initiatives are going to be achieved. The three crucial issues are: improving the TAB's performance, revitalising the industry by getting more people to the races, and changing the racing calendar and funding arrangements. Larsen is promising racing's annual returns could be between $20 million and $35 million within three years if the new strategy is successfully executed, with the board spending $10 million from its cash reserves to help achieve that. "The proof of the pudding will be in the detail and how they apply that $10 million in cash," says Harness Racing New Zealand general manager Edward Rennell.

Racing enthusiast and publisher Wendy Pye is concerned time's running out for the sport. "My feeling is that there have not been enough people in racing that have been accountable. The jury is out on the board's ten points until they're actually implemented. The days are gone when you can sit on boards for years and nothing happens."

Racing's share of the market went into steady decline during the 1990s, despite huge growth in the overall amount spent on gambling (see graph). The industry urgently needs to attract new punters - starting with the 19-30 year-olds who, according to a NZRB study on customer perceptions, are an untapped market.

Get them young, and you'll have enthusiasts for life, is the thinking. Once hooked into the industry, people become lifetime participants - look no further than the pint-supping old blokes seen frequenting race tracks today.

But today's competitive entertainment market requires a different approach. Increasingly, the industry realises it has to lift the overall ambience and experience of a day at the races. "Greasy chips and a hotdog was 25 years ago. People won't go if the venue isn't good," says Ernie Ward, boss of DaimlerChrysler NZ, whose Mercedes brand is a major racing sponsor. That's why Ellerslie will have a sushi and champagne bar by Christmas.

Three-legged race
The board is not alone in trying to sharpen racing's act. Under the industry's new governance structure, the three codes are run by their own boards, each of which has a representative on the wider seven-member racing board.

Greyhound Racing, the smallest but fastest-growing of the three, has just launched a new brand called "The Dogs" in a bid to warm more seats. It has also introduced an annual race, "The Shootout", where four of the country's top dog trainers compete for a $40,000 prize and on-course entertainment, including a netball shootout hosted by Silver Ferns' captain Anna Rowberry. It's all about adding excitement.

Leading the charge for the thoroughbred code is the Auckland Racing Club. It has overcome governance problems that fostered a dysfunctional board, replacing it with a commercially focused group that's making some bold moves.

In a landmark deal between two clubs, the ARC and Counties Racing Club are building a joint horse training facility at Pukekohe at a cost of up to $2.2 million. This leaves $9 million from the ARC's sale of its Takanini training complex for a long overdue upgrade of its Ellerslie Convention Centre and members' stand. The aim is to increase the club's non-racing revenue by more than $2 million a year by boosting the convention centre business and developing its surplus land.

"This is not about rearranging the deck chairs on the Titanic. We need to rebuild the boat," says Chris Weaver, the ARC's dynamic new chief executive. The 36-year-old former Lion Breweries marketing executive is unashamedly thieving the best concepts from Australian racing clubs. A series of glitzy carnivals and twilight racing is planned, culminating in a week-long event in March that will rival Christchurch's Cup Week and Australia's Melbourne Cup, both in November. Two iconic Auckland races - Derby Day and Auckland Cup

Day at Ellerslie - will be shifted to March with a further Ladies' Day added in. Trotting and greyhound events will be coupled with the galloping races to attract more punters.
The club is enlisting Tourism Auckland to help promote the week's non-racing events - such as a ball and fashion shows. With good promotion, the events could bring an additional 10,000 visitors to Auckland, Weaver reckons. "It's all about presentation, creating an event, a product that you can sell to punters and sponsors. Once they come, you can lift stakes so all industry stakeholders benefit."

It worked at Flemington. Ten years ago the four-day Melbourne Cup Carnival attracted around 250,000 visitors. Last year it drew 375,000 - many of whom weren't traditional race-goers. Some 70% of punters were non-club members, compared with 20% at other Flemington races during the year. The secret to the success of the 143-year event has been the race's growing internationalisation, and building the atmosphere through fashion, celebrities, big screens and plenty of on-course entertainment, says Stephen Silk, Victoria Racing Club's general manager of strategic marketing.

But the single biggest catalyst for reversing Victoria's decline in racing participation was rebuilding the on-course facilities five years ago, Silk says, which boosted club membership from 12,000 to 22,000.

Hurdles ahead
So New Zealand racing has identified its problems and is finally taking action. But the biggest challenge will be overcoming the industry's history of fierce resistance to change and parochialism in all three codes.

Many of New Zealand's old community-based clubs are struggling to update their ageing infrastructure and keep afloat. Most don't have the cash reserves that the Auckland Racing Club has to make its facilities more competitive. More than half face major financial challenges and around 40% show negative operating cashflow. Scores of racetracks have closed in recent years, but there's still room for further rationalisation, particularly in the bigger thoroughbred racing code.

But rationalisation is not a priority for the racing board, which is dominated by political appointees. "If I just came in and tried to rationalise everything, all I am doing is continue the downward slope of retrenchment," Graeme Hansen says. "I'm trying to turn things around and make it into a positive." He's leaving any decision to close or merge more clubs to the individual codes.

Canterbury has gone further than any other region in the thoroughbred code, with the merger of several small country clubs. Initially five clubs, running six annual race days between them, joined forces under the Canterbury Country Racing umbrella. They keep their own identities, run their own race days, use the same track and treat the chequebook as one. If one club has a rainy race day, it doesn't face financial chaos that year as others that have made a profit will pick up the slack. A sixth club has now joined the fold, and the group's first full season last year proved successful, says Canterbury Racing chief executive Tim Mills. "It has set the lead for other parts of the country."

New Zealand Thoroughbred Racing thinks so too. It plans to start a regional cluster in the 2005-06 season that pools the resources of 71 thoroughbred racing clubs under just five chequebooks. The code has also released a review, which looks at changing traditional racedays to better match what customers want and which horses are available to race.

"Continuing to do business the way we have for the last 150 years is no longer sufficient. But instead of coming in and saying 'close this club or that club', this model allows them to do it from within," says NZTR chairman Guy Sargent.

Carving up the pie
The three codes can't survive without each other and are increasingly trying to cooperate. Some areas successfully run dual-code race meetings, but that unity is threatened by ongoing tension over the TAB profit allocation.

The new Racing Act dictates that the TAB's earnings are allocated according to each code's share of total domestic betting turnover - 54% in the case of thoroughbreds, 32% harness and 11% greyhound. But many in the thoroughbred code remain opposed to the formula, complaining it doesn't reflect thoroughbred's dominant position in the industry - some 73% of racing's overall contribution to the nation's GDP.

It wants the allocation to be based on net wagering revenue, including offshore betting, which now accounts for some 27% of total turnover. That would lift thoroughbred's share of the pie to 65% - or an extra $6 million a year to put into stake money.

Unsurprisingly, the harness racing and greyhound codes are not too keen on relinquishing a greater share to their thoroughbred brethren. "We've been treated as the poor relation of racing for too long," says greyhound owner and trainer Owen Marron. "We're entitled to an equitable share under the legislation."

That argument infuriates the racing board chairman, who says the codes should be fighting to boost the size of the overall business, not over their share of it. While Larsen doesn't support changing the formula, he suggests moving from turnover to fee-based funding to better reflect the different resources required to run events. The cost of running a greyhound race differs from staging a thoroughbred one; a picnic day race at the West Coast's Kumara club differs from an event at Ellerslie. "We need to have the courage, confidence and imagination to review this sacred cow without anyone feeling threatened," Larsen says.

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